Insurance and Surety Concerns For 2009 State Legislatures

Along with many other issues, The 2008 November Presidential election and economy has changed some of the makeup of the state legislative agendas. Like the battle of some in Congress to the industry’s use of information from credit reports, limitations on the use of credit scores are likely in many states in which the Democrats have gained control of both chambers of the legislature. So far, the legislation has been restricted mainly to personal lines insurance.

Due to these recent changes, there are some added subjects that are expected in the state legislation in 2009 that have either been created or revitalized from the recent political and economic state of affairs. These subjects are listed below:


The Florida Senate Banking and Insurance Committee is revising the repeal of the insurance industry’s exemption under the Florida antitrust statute. The next Senate President kicked off this topic late last year. Application of the state antitrust laws to the insurance industry and to advisory and statistical groups, such as SFAA, is mainly unchartered waters. There is minor case law or enforcement of state antitrust laws against the industry, mostly due to state exemptions that reflect the federal McCarran Act.

Bad Faith

The trial bar is presumed to push bad faith legislation to Florida, Idaho, Louisiana, Michigan, Minnesota, Oregon and Washington. SFAA will evaluate all bills for application to both surety and fidelity bonds. The extra states in which there are concerns with the trial bar that could generate bad faith or other anti-tort development measures are: California, Colorado, Illinois, Nevada, New York, Pennsylvania, and New Jersey.

Regulation of Credit Default Swaps (CDS) Given the position that credit default exchanges played in the meltdown on Wall Street, a few state insurance regulators may try to regulate CDSs as insurance, or as surety or financial guarantee, depending on the descriptions and other licensing and capital and financial regulations in their insurance code. A CDS is a contract under which the supplier guarantees the consumer to pay upon the event of a credit incident, usually a failure to pay, at an exact entity.

The Missouri Insurance Department just released a bulletin affirming that it will standardize particular CDS as surety as of January 1, 2009, while the Department will use good judgment in its enforcement authority to the degree of any wide-ranging federal regulatory scheme is created for CDSs. Sellers of CDSs have to be licensed in Missouri, abide by the capitalization requirements, and agree to financial and market conduct regulation as insurers.

New York will be a key state because New York law usually has governed regarding the regulation of surety and financial guarantees because of the extraterritorial statute the Appleton Law. While New York initially confirmed that it would look into regulating CDSs as insurance in some way, in more recent proof in Congress, the Department stated that it would wait to see what development federal regulators made on addressing these free products. The New York legislature will carry out a hearing on CDSs in early December. There was legislation initiated in Congress late this year to demand every swap and copy to be traded on a regulated exchange. A number of the federal banking and securities regulators have stated that they are in the process of working on a clearing house for these transactions so that all the suitable regulators will have information required to observe and reduce the risk in these connections.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.


Gamil Hanna

What happens to the premium of a Payment/Performance Bond, if after performing 10% of the Contract, the Contract gets cancelled?

Thank you.


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